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If the price of water reflected its value, would we consume it in the same way?

by Karla Aurea Peralta Paredes

“Hardly a week goes by without a major news story about the threatened destruction of a valuable resource” — Elinor Orstrom (Governing the Commons, 1990)

As we transition into a new season, we are able to reckon with the impacts of climate change this summer. This includes heat waves, where over 100 U.S. cities experienced one of their top-ten hottest summers this year; historic rainfall and devastating flash floods, experienced in parts of Missouri and eastern Kentucky; wildfires, where as of September 15, over 50,600 wildfires have damaged more than 6.7 million acres this year (above the 10-year average); and severe droughts, widespread from the Great Basin to the Pacific Coast. The summer of 2022 was a season of extremes, and these events influence the way we live, the amount of energy and water we consume, and in the foreseen future, where we choose to reside. These events also encompass the complex topic of water management, which requires various activities like proper planning, efficient distribution, and optimal use of water resources to meet current and future demands.

As years go by, we are more frequently exposed to what a future without water looks like, as well as to its economic, environmental and social impacts. For instance, two of the largest reservoirs in America (Lake Mead in Nevada and Arizona and Lake Powell in Utah and Arizona) are at their lowest levels due to decaying flows and increasing withdrawals from the Colorado River, which supplies water to 40 million people and more than 5.5 million acres of agricultural land. These reservoirs are in danger of reaching “dead pool status,” which implies that the water level in the dams will be so low that it could no longer flow downstream, affecting water supply and hydroelectric energetic production. This dire situation is also being experienced in countries outside the U.S., such as when Cape Town, South Africa (where water shortages have long been a way of life) in 2017 experienced one of the most significant droughts ever recorded. This drought threatened the arrival of “day zero,“ which would mean that the city would have to shut off drinking water to most businesses and homes. The crisis was averted due to two main factors, first, the implementation of emergency actions, with created a water limit consumption of 13 gallon per inhabitant per day, which is less than the recommended minimum personal daily water needs by the U.N. (13.20–26.41 gallons); and second, the arrival of rain, which rose dam levels. Experts believe that climate change and overconsumption of water are factors that increase these events, So, what is the best solution to guarantee water quality and quantity for all citizens in the long term?

A few years ago I came across a video focused on the World’s Water Crisis, which drove me to study more about water management and its hurdles. Some of the main root causes that threaten the long term supply of water are aging infrastructure given that the infrastructure design standards of reservoirs and disaster response plans used in the past might soon be out of date; water lost due to leakage, through the water distribution system and at home (the average household’s leaks account for more than 10,000 gallons of water wasted every year, equivalent to the amount of water needed to wash 270 loads of laundry); and high water demand (in America the average family uses more than 300 gallons of water per day at home).

A number of actions must simultaneously be implemented to fix the former causes, but today I want to make the case for the importance of water demand reduction. Water, defined as a Common-Pool Resource, is a good that operates as a hybrid between public and private since it is shared and available to everyone but also scarce, with a finite supply. These types of resources tend to be subject to the tragedy of the commons, where everybody acts in their own interest, over-consumes the resource, and ultimately deplete it for all. In 2015 the United States Geological Survey (USGS) published the national breakdown of water withdrawals which shows, to my surprise, that the thermoelectric (41%) and Irrigation (37%) uses are attributed to 78% of the total annual withdrawals in 2015. In the figure below, it is possible to see which are the counties that contribute most to water extraction by use. Interestingly, some of the counties with more water extraction attributed to irrigation are in the states that suffer from the highest droughts.

So the question is, if the price of water reflected its value, would we keep growing some of the most water intensive crops in the driest regions?

One of the most common policies that are implemented to reduce water demand are metering and pricing. These policies consist of metering the amount of water consumed and then charging a fee. Water pricing policies have different scopes in different areas of the world, even states. Some fees are designed to mainly support the maintenance of the water infrastructure, others aim to send a price signal to the consumer with the scope of reducing water demand. The former tends to be incredibly unpopular, due to the fact that water is a human right, and also because increasing the price of water may put more pressure on family budgets. Nonetheless, pricing policies could be beneficial by charging a higher price when consumption is above the human right or targeting specific uses, which could send a price signal and reduce consumption. For instance, in agriculture, this idea could be implemented, where production is projected to double by 2050 in order to sustain the needs of the growing world population. In Australia, where the price of agricultural water has increased, they were able to cut irrigation water use by half without loss of output by implementing existing water-saving irrigation techniques.

“We must recognize that all our key environmental challenges are connected to water — whether there is too much or too little, or whether it is too polluted for human use. The task now is to understand the links between water, climate change, and biodiversity loss, and to properly define, value, and govern water as a global common good. Thinking about water in this way will allow us to mobilize collective action and design new rules that put equity and justice at the center of our response”.

-Mariana Mazzucato

As we experience more environmental shocks related to climate change, it is important to identify which actions we should take going forward. In the case of water management, measuring and disseminating the amount of water that is destined for different uses is crucial, and could create a great impact on the way we consume, and better design policies to use the resource in an efficient way. Lastly, a great step has been taken by the federal government on Earth Day (4 April, 2022) when the White House announced the launch of the Natural Capital Accounts initiative, which intends to measure the economic value that natural assets provide to society and reflect them on the nation’s balance sheet. “Our natural assets will finally be reflected on our nation’s balance sheet, where they will tell us how future opportunities are changing — just like a balance sheet helps assess a business’s creditworthiness”. -Biden-Harris Administration.

I believe this is outstanding, in the meantime, there are actions that we can all take, for instance, to reduce domestic water consumption, and as policy makers, evaluate which are the main threats that water shortages impose in our communities and evaluate the best solutions.

I am curious to know what you think, please leave your comments!

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Cityfi advises cities, corporations, foundations and start-ups to help catalyze change in a global, complex urban landscape. Twitter: @teamcityfi